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WP/026 Aid and Dutch Disease in Sub-Saharan Africa

Research and Communication on Foreign Aid
International aid has an ambiguous effect on the macroeconomy of the recipient country. To the extent that aid raises consumer expenditure, there will be some real exchange rate appreciation and a shift of resources away from traded goods production and into non-traded goods production. However, aid for investment in the traded goods sector can mitigate this effect. Also, a relatively high level of productivity in the non-traded goods sector combined with a high level of investment will tend to depreciate the real exchange rate. We examine aid inflows in 26 sub-Saharan African countries, and find a variety of macroeconomic responses. Some of the variation in the responses can be explained by variation in observable country characteristics; this has implications for donor policy.
Publisher:
UNU-WIDER
Series:
WIDER Working Paper
Volume:
2012/26
Title:
WP/026 Aid and Dutch Disease in Sub-Saharan Africa
Authors:
David Fielding and Fred Gibson
Publication date:
March 2012
ISBN 13 Web:
978-92-9230-489-8
Copyright holder:
© UNU-WIDER
Copyright year:
2012
Keywords:
aid, Dutch disease, Africa
JEL:
F41, O56
Sponsor:
UNU-WIDER gratefully acknowledges specific programme contributions from the governments of Denmark (Ministry of Foreign Affairs, Danida) and Sweden (Swedish International Development Cooperation Agency—Sida) for the Research and Communication (ReCom) programme. UNU-WIDER also acknowledges core financial support to UNU-WIDER’s work programme from the governments of Finland (Ministry for Foreign Affairs), the United Kingdom (Department for International Development), and the governments of Denmark and Sweden.
Format:
online